I was surprised the market did not react positively to the Q2 earnings. At first glance, the numbers don't look so hot, but they're pretty good when put into context and there was mention of the acquisition adding $200k+ in revenues per quarter starting in Q3 -- a very big announcement.
Subscription and service revenues (the recurring revenues) were up 27.6% sequentially which is excellent considering that Q2 is seasonally their weakest quarter as per the MD&A. Product revenues were down from $385k to $316k sequentially, but it's a nonissue. Product revenues (mostly comprised of the sale of plastic cards) are lumpy from quarter-to-quarter as clients order plastic cards in a lumpy fashion. In Q1, there was an abnormally large order of plastic cards from one client. So the decrease in product revenues from Q2 to Q1 caused an overall decrease in revenue as well, masking the growth of the recurring revenue segment.
Ackroo posted a $662k loss this quarter, but there was many one-time charges which inflated the expenses. Those one-time expenses were the $125k dispute settlement (they settled with a firm they tried to arrange a debt financing that ultimately fell through prior to the private placement) and charges relating to the integration of both acquisitions.
While I can understand why these numbers may not have excited every investor, I believe it's crazy not to be excited by the mention of the DealerRewards acquisition adding $200k in revenue per quarter. This means Q3 revenues will grow by over 50% YoY and future quarters as well. I estimate the company will bring in $550-600k in Q3. IMO, it's safe to say that the market should react positively to Q3 earnings based on this information. Furthermore, Steve was interviewed recently and he publicly announced that he expects Q4 to be profitable. These where his exact words on the call when asked about what milestones should investors be looking for in 2015 and beyond: "I think the biggest and most obvious one, and I’ve been providing a bit of guidance to the market, is that we’re striving to have our first profitable quarter this year. Our goal is that Q4 we've got a profitable quarter to boast on and hopefully it’s a big enough quarter to make up for the losses happening earlier in the year".
In conclusion, I'm expecting the third and fourth quarter results to be large catalysts for the stock price. As mentioned in my previous post on Ackroo, I think the stock is easily worth $1.20 per share, and these near-term catalysts should no doubt help close that gap.